The NTPL Insurance Market Today

• Author: Directorate-General for Energy (European Commission), ENCO
• Pages: 14-23

Final Report - MOVE/ENER/SRD/2016-498 Lot 2

Study on the insurance, private and financial markets in the field of nuclear third party liability

Page 14

3 THE NTPL INSURANCE MARKET TODAY

3.1 INTRODUCTION TO THE NUCLEAR LIABILITY INSURANCE MARKET

The nuclear third-party liability (NTPL) insurance market is different to the normal insurance market because

the capacity providers are mostly grouped into only two competing blocks of capacity, being nuclear industry

mutuals and nuclear insurance pools. An in-depth study of the nuclear insurance market written in the last

  wing to the high severity low frequency loss pattern typical of nuclear risks, a highly

             11; little has

changed since then.

The first providers of nuclear specific insurance were the nuclear insurance pools, which were founded in the

late 1950s, at the same time as the nuclear industry commenced commercial operation of nuclear power plants.

There was an understanding that if commercial nuclear power was to develop it would need insurance; however,

the understanding amongst insurers of the nuclear energy risk was at that time influenced by the recent

experience of the immense destructive power of a nuclear reaction, demonstrated by the 1945 explosions of

the two atomic bombs at Nagasaki and Hiroshima in Japan.

In response to demands from governments to insure these new risks, insurers around the wo rld began to

consider suitable mechanisms for providing nuclear insurance; recognising that a catastrophic loss with

widespread contamination over a large area was possible and that such a loss could easily exceed the resources

of a single insurer, the insurance markets opted for a pooling mechanism as being the best method of delivering

maximum capacity to such a limited number of complex and potentially damaging risks12.

By the 1960s nuclear pools we re operating in Germany, Switzerland, Sweden, UK and the USA; typically, pools

were formed by their national insurance trade body to maximise market access and capacity and to this day the

pooling system is made up of national pools that cooperate internationally. Although able to offer immediate

risk-transfer capacity, the international cooperation amongst the insurance pools offered limited true

competition in the eyes of the buyers of insurance - the site operators; therefore, in the 1970s nuclear mutual

insurance entities were established by the operators as a competing source of capacity.

The first of these nuclear mutuals was established in 1973 in the USA and since then, the mutuals have expanded

their offering from just material damage (1st party property) cover to include NTPL; specifically, the mutual

European Liability Insurance for Nuclear Installations (ELINI) was established in 2002 for this purpose alone.

Mutual insurance now is a material component in the global nuclear capacity mix, although less so in the NTPL

market; globally there are 3 significant mutual capacity providers, with Nuclear Electric Insurance Limited (NEIL)

of the USA dominating the domestic property insurance coverage, having largely usurped the domestic

insurance pool by 2010. Arguably, with a global safety peer review13 mechanism in place and generic nuclear

regulatory regimes, the sector homogeneity should suit greater operator mutuality, but aside from the nuclear

pools and the few existing mutuals, there has been little new capacity development in the past 10 years. Only

11 See J. D Nuclear Energy and Insurance  VI  - Witherby & Co.

12 Ibid.

13 The World Association of Nuclear Operators (WANO) provides a peer review service to member operators.